Here's why it makes sense for Amazon to create a console

Rumors have been circulating for over a year that Amazon (and its Lab126 subsidiary) is working on an Android-powered device designed to plug into your TV -- in other words, a console. These rumors have been given additional life with Amazon's purchase of Double Helix Games, a long-time console game developer. Just today, a fresh rumor asserts Amazon will launch a console in March. Why would Amazon buy a console game developer unless they were creating their own console?

Really, there's no logical reason for Amazon to buy a console game developer aside from needing in-house resource to create games for a new console. Double Helix Games has no experience building games for Android tablets, which is the other hardware segment Amazon is currently in. Developing games for consoles from Microsoft or Sony (Double Helix's expertise) seems like an unnecessary distraction for Amazon; after all, they already sell games for those consoles from every publisher.

What does make sense is for Amazon to have a presence in the family room on the big screen, and for that market games are a necessary part of the development effort. Look at Amazon's history in hardware - the company got into the Android tablet market a couple of years ago. There was already plenty of tablet competition, and Amazon not only sold all the different tablets but provided its services (like the Kindle Reader, and later streaming video) on those devices. Yet Amazon entered the market with its own tablet, the Kindle Fire. That tablet (and its successors, the Kindle Fire HD and Kindle Fire HDX) have sold extremely well, capturing a substantial part of the market. Amazon won't release figures, but some analysts say Amazon may have a 20 percent share or more in North America.

"Amazon is creating its own console so that it can control the experience and the platform, and offer shopping to customers on the big screen"

Amazon got into the tablet hardware business not to make money on the hardware itself (its tablets are priced barely above manufacturing costs), but to control the platform and the experience. If you're reading a Kindle book on someone else's tablet, or viewing an Amazon-purchased movie, you're not giving Amazon its best chance to sell you other products. On a Kindle Fire, Amazon can make you plenty of offers for other merchandise, and thus increase its profits substantially. Plus it doesn't give up 30 percent of the sale price to Apple.

Moreover, Amazon realized that people were shifting their web viewing, and their shopping habits, to tablets in big numbers. Amazon wants to be where shopping happens, for physical goods as well as digital goods.

The same logic applies to the TV screen in the family room. People spend a lot of time there, and web viewing is quickly becoming commonplace on the big screen. An increasing percentage of TVs are smart TVs that include web viewing. Streaming video is now the most common use, timewise, for video game consoles. Apple is clearly going to open up Apple TV as an app platform someday, and perhaps compete directly with Netflix. Amazon doesn't want to let all of these other companies control a major portion of the audience's experience.

Amazon is creating its own console so that it can control the experience and the platform, and offer shopping to customers on the big screen. Using the strategy Amazon employed with tablets, you can expect an Amazon console to be at the low end of the price scale, probably near its manufacturing cost. Amazon would want to see as many people as possible using its console, and a low price is crucial for that to happen. Look for a $99 retail price, or perhaps even a $79 price.

As for the hardware itself, Amazon will likely go with Android internals because of the low price and its familiarity with the the OS and hardware. We'll probably see something like a Kindle Fire HDX internally: Qualcomm Snapdragon 800 quadcore 2.2 Ghz, Adreno 330 GPU at 450 Mhz, or perhaps the next step up from there. This will provide an excellent, smooth experience at HD resolutions, as well as game performance in the neighborhood of an Xbox 360.

Why are games important, and why does Amazon need its own game developer? First of all, games are the largest single app category on mobile devices, and by far on console devices. Many people already have a device connected to their TV capable of streaming video, so why would they want another one? A low-cost gaming console with some very attractive games and good deals on Amazon streaming offers a compelling answer.

"All of the shopping tools that Amazon has developed on their web site could be present, and even enhanced, by an Amazon console"

Why can't you just use existing Android games? Here's where it gets more interesting. Yes, Android games could be played on a TV, but as we've seen with the Ouya console people aren't thrilled with them. Games designed around a touch screen don't work well with a controller, for the most part. (Some simple games could be easily mapped onto a motion-sensitive controller with a single button, like a Wiimote; some like Angry Birds or Fruit Ninja or Wii Tennis would work fine this way.) Trying to use a smartphone or tablet as a controller for a TV screen is hard to pull off, as you are constantly shifting from watching the small screen to the big screen (the Wii U has this problem, too).

You really need games built for a console controller, which is where Double Helix's expertise comes in. If Amazon can have a great fighting game, a great FPS, a great RPG and perhaps a simple arcade game or three, that would make the Amazon console a convincing game machine. Once Amazon sells a few million, Android developers would be eager to provide serious support with controller-revised versions of their games. Ouya has been hoping for that, but without the ability to sell millions of consoles in a short time or pay for development, Ouya has been stymied. Amazon will have no such problems.

Amazon also won't have to worry about providing boxed games to retailers, which means Amazon console games can be whatever price Amazon desires, even free-to-play. Amazon could sell their console with a simple Wiimote style controller for $79, and sell a classic controller bundled with a fighting game for $29.

Beyond the games, look at the potential for unique shopping experiences. You're watching the latest episode of House of Cards on your Amazon console, and you see a great outfit or suit. Press the button on the remote and up comes the Amazon listing for that clothing item; press another button and it's delivered to your door in two days. Or you see a slick car being driven onscreen; press a button and find out where you can test-drive it in your area (wouldn't auto dealers pay to be in on that?).

With the possibility of advanced Kinect-style cameras, or just proper usage of a smartphone camera, you could provide accurate measurements to Amazon so that perfectly fitted clothing would be available with a button press. All of the shopping tools that Amazon has developed on their web site could be present, and even enhanced, by an Amazon console.

We don't know for sure what Amazon will do, but it is interesting that Lab126 has more than 250 job openings. That seems like far more than you'd need to work on existing tablets and Kindle e-book readers. A rumor that Amazon might buy Microsoft's Xbox business has been floated, but denied by Microsoft - and it seems pretty silly for multiple reasons. Why would Amazon spend big bucks for the Xbox business? Amazon can build its own console business for far less, without all the entanglements of the Xbox (with its many connections to other Microsoft services) and without the legacy of selling $60 boxed games. The purely digital console business is far more attractive and profitable.

Don't be surprised if you see an Amazon console announced by the summertime for shipment this fall, or even before. Amazon is a competitor to watch, and an interesting opportunity for game developers in the future.

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A big part of Microsofts woes on X1 is that Amazon stole large segments of their engineering team, a lot of the people responsible for the apps and media side

The whole "I want Joeys Sweater" thing has been a retailer and marketer dream for at least fifteen years. That's what BD Live was supposed to be on Blu-ray, but the CEs didn't allocate enough memory to make it practical. In my experience with prototypes of this kind of thing, people are typically too engaged, or disengaged from the shoe to even know this is an option. About the only way they'd manage inserts a Smartglass style experience baked into a Kindle fire that's constantly offering you products. A feature that would get turned off very quickly. The time and energy it would take to map every minute of every show for touch shopping is way more than its worth. You're talking ten hours per hourlong episode, and that's for two products on offer in every shot. I worked with a buddy to prototype a possible system, and we pretty much gave up on it after initial testing. We used a fashion program, cooking, a drama and a comedy. Users were fans of the show and had not seen the episodes before. They were informed of, and had the system demonstrated to them before hand, and they didn't find it useful, or realy even remember it's there after initial experimentation.

What did work better was offering them a selection of products after it was over. Much more practical, and attuned to the existing Amazon infrastructure.

Just for the record: Amazon doesn't give Apple 30%. They force kindle and digital movie purchases to be made through the web browser specifically to circumvent those rules.

If Amazon can have a great fighting game, a great FPS, a great RPG and perhaps a simple arcade game or three, that would make the Amazon console a convincing game machine.

I think you're underestimating the challenge here to put it mildly. Amazon will be able to shift boxes but their users aren't going to suddenly spend enough on games to draw mainstream console development resources away from the traditional consoles. The consumer proposition is equally underwhelming. Why buy a separate box that can do a selective slice of what laptops and tablets already in the living room offer, and nowhere near what the consoles will offer during their lifetime?

Even if they don't have to ship games on disc, they need to put enough storage in the box to download them. They're not going to price their box massively below cost.

It will be a more credible Android gaming box than any of the microconsoles (this is not exactly hard) but it will still be a video box first and foremost.

Robin, I believe they're targeting the ability to play midrange level XBLA games. That would seem achieveable. It'll run the Walking Dead, it'll run Strider, if Amazon is smart they'll be looking for exclusives that can be played while dinner is cooking

Amazons core demo is kids, and their professional 30-something parents. They want to make Minecraft, not street fighter. Double Helix was probably bought specifically for their nostalgia expertise (Strider is great!) that would appeal to that demo.

When Amazon expanded into creating TV shows, they were not aiming for no-budget trash television. They did not enter fringe TV markets either. They went after the big ones. They tried to make something you'd expect on a yearly list of Amazon bestsellers.

I do not want to talk down Strider, or anything other Double Helix have made, I love the new Strider, but it is a fringe game for a fringe audience and I do not see Amazon releasing a console just for the sake of having a dedicated device for fringe audience games.

I remember the last article suggesting that both Google and Apple were potentially looking into a console move.

Back then I was highly supportive of the idea, seeing the Ouya as a prototype for what could be with a big corporation, evolved ARM based architectures and a strong distribution channels like you see in Amazon.

I'm just as confident and more so that this is would be a very good move for them. I feel that not only the TV gaming market could be blown wide open, the market is still looking for the best multi-media solution and destination - companies like Microsoft and Sony are trying to convince us they have the best offering, then you have the likes of Google and Apple that have only just touched on their potential here.

Google, Amazon and Apple have all the funds, all the on-line distribution capability and the right people coming in behind them to produce a serious threat to the big guns in the living room.

I'm not saying they'd make Strider. The audience I'm talking about works best on brand recognition. SomSnce they have a firm grasp on making modern versions of old games, that would be a target.

Amazon is aiming for the mobile space+. They're not interested in dropping $15-20 million on a risky AAA game when they can drop 3 and buy a season of TV with the rest. It's not their market. If this thing blows up gangbusters might that be in their future? Maybe, but not right now.

@Adam
The issue there is that this industry seems to only want to really support 3 systems. With Nintendo's current market share problems, Amazon may want to try and move in on that 3rd spot, but I don't know if they've got what it takes to claim it. For one thing, Nintendo certainly won't let them have it willingly. That's a fight that I wouldn't pick if I were Amazon.

I think we run the danger of still thinking that the industry has a single dimension that consists of three incumbent console companies. Or that games are the only things that matter when it comes to their market potential.

According to all the statistics out there, gaming habits are changing more than people think. For example the statistics on the time and location in which people mostly play mobile games suggest as devices they may be in direct competition with other devices including PCs and games consoles. TV based consoles with mobile architectures, may threaten to both extend and vastly expand on those experiences.

We also forget that there are more multimedia devices out there than just games consoles, which something like this would in theory also wish to compete with. Around 1 in 6 people in the UK have a Sky TV box. Higher than the figures you'll get from consoles. Add in Virgin Media subscribers and that combined figure is even higher.

Games consoles right now have a very tiny portion of the potential market for set-top boxes, multi-media players or similar devices that may take place in our homes. With this in mind, from a development perspective, mobile games and perhaps mobile style games services moving into the living room could be where a big portion of the money is. For multi-media, the competition is fierce with the existing consoles far from being the only or the default choice.

There's always talk about what the industry wants but I don't think we all want the same things. Consumers also may not follow the same view if their Amazon and Apple boxes are retailing a low prices, with superior digital services and entry-level "next-gen" graphics. The way people decide to consume their games, films and TV could change.

Edited 1 times. Last edit by Adam Campbell on 23rd February 2014 12:09am

I think we run the danger of still thinking that the industry has a single dimension that consists of three incumbent console companies.

Not only do we run the danger of this, not properly looking at the distinct markets is a terribly common way people (or at least some commenters here) go wrong. This is how we got the "consoles are dead" argument, and two hundred million or more people became a "niche market."

I very much doubt Amazon will try to compete with the MS/Nintendo/Sony console trinity or even PCs. We've seen from mobile that there's a huge market for "non-core" gamers outside of that, and I think that there may be room for something you can do on your TV that isn't full-on core gaming. I'd imagine one selling point might be if you could seamlessly move between one's phone or tablet and a TV, just as you can now with services such as Hulu. It seems plausible that "casual" gamers might, even in their lack of sophistication, still, if the opportunity happens to be there, prefer to kick back on a sofa with a controller rather than poke at their tablets. A device that fits in that slot might do well.

I envision the winner of the console wars will ultimately be the company that can get their console to be both the gaming console and HD set top for peoples TVs. There are two boxes in the living room, there only needs to be one.

Now the interesting thing is, right now the HOT companies are basically companies who make no money, they subsidize their product in order to get a huge market share, then they go public, make a TON of money via inflated stock price ,all under the illusion that some day they may figure out a way to monetize their subsidized market share ( good luck with that and Of course this all basically just set up the internet bubble 2.0) but hey , until it pops,its the way to go. How else can you become a billionaire without ever showing a profit. So why shouldnt amazon or someone else jump in, subsidize and try to capture the market, its not like you need to make money right now, just capture the market.

Of course this all ends badly, but when the Central bank bubble burst it all ends badly anyway, so why worry. the ending is already written.

I envision the winner of the console wars will ultimately be the company that can get their console to be both the gaming console and HD set top for peoples TVs. There are two boxes in the living room, there only needs to be one.

While the second sentence is correct, I have doubts that there will be a "winner" who takes all. The problem is, we really have two distinct markets here.

The first is the current console market, those wanting to play the triple-A titles (and many smaller, but equally sohpisticated ones) and willing to pay for the ability to do that. They're buying PlayStation 3s and 4s, and Xbox 360s and Ones, at the moment. (And PCs, but those have a level of difficulty of use that makes them unlikely to take over this market.)

The second market consists of the folks who are more than mere casual consumers (happy with Angry Birds or whatever's cheap on their phones) but not core enough that they're willing to spend as much money or time as the core gamers buying the PSs and Xboxes. It's not a small market, as shown by the Wii, and there's plenty of room for a $100 box that will play some decent games and serve as a set-top box.

But that there needs to be only one box is the exact problem here. If you have a PS3, you're not going to buy another, cheaper box to put alongside it because the PS3 already does everything that the cheaper box does. But the cheaper box can't take a big bite out of the higher-end console market because it doesn't do what's necessary on the gaming side for that. That leaves us with a divided market, with the serious console gamers needing only that, and the serious console vendors unable to compete in the market that's looking for a cheaper set-top box.

Amazon can get in to that second market, if it exists and continues to exist given the increasing capabilities of mobile devices. (The latter might kill it by becoming the iPods of gaming.) But they can't take on the high-end console market without both a commitment that's probably too serious for them and pricing themselves out of that potential lower-end market.

Edited 1 times. Last edit by Curt Sampson on 24th February 2014 10:23am

Whilst it's the obvious way for us to look at it, I do wonder if a "console" is how amazon will see this themselves, or market it. The main reason for them to get an android box under people's televisions is surely lovefilm? They're presumably covering the games angle simply because they'd be foolish not to. Apple and google didn't make handheld consoles - they made must-have devices that could also play games.

I suspect this means a remote, rather than a controller, but one designed to work as an accessible games controller. Something functionally similar to the wii remote might work, especially if they're trying to keep costs down.

Sony, in Japan, is trying to make inroads with a micro console tv experience based on its own handheld console, the PS Vita. The PS Vita TV is basically Android-architechtured, but the games are high quality, plus it is a streaming tv device, running things like Netflix, HULU, Crackle and Sky.In one bundle, a Dualshock 3 is included. The only things that it cannot circumvent are the touch-based aspects Vita games, which is an intrinsic quality that may polarize some. Sure, you can plug your memory stick into it and there may be some PSP games you can download and play (there may be some Vita games that do not require the touching). If Amazon does go with this move, I hope they watch Sony, because they are already poised to move in...